SMM Morning Comments (Mar 28): Base Metals Closed Mostly with Gains amid Sustaining Energy Issues

SHANGHAI, Mar 28 (SMM) - Shanghai and LME base metals mostly closed with gains as the energy crisis still haunted the market, and investors mostly held a bullish outlook.  

LME copper shed 0.32%, aluminium rose 1.54%, lead added 1.3%, and zinc jumped 1.72%.

SHFE copper shed 0.43%, aluminium rose 0.15%, lead added 0.81%, zinc jumped 0.44%, nickel slumped 12.18%.

Copper: LME copper opened at $10,328/mt last Friday and fell to $10,290/mt before reaching the high level of $10,332.5/mt. At last, the contract closed at $10,310/mt, down 0.32%. Trading volume was 8,547 lots, and open interest stood at 247,000 lots.

SHFE 2205 copper contract opened at 73,500 yuan/mt last Friday night and once fell to a low of 73,100 yuan/mt. At last, the contract closed at 73,250 yuan/mt, down 0.43%. Trading volume was 24,000 lots, and open interest stood at 152,000 lots.

On the macro front, US dollar index rose amid relatively exciting US economic data and US Fed’s interest rate hike expectations, pressuring copper futures. In the spot market, SMM domestic copper inventory across major markets in China dropped to 148,800 mt. And the spot market was impacted by the COVID, containing smelters’ shipment and terminal demand. And the situation is expected to remain for some time. Copper prices are still subject to Russia-Ukraine tensions and energy supply issue.

LME copper is expected to move between $10,270-10,370/mt, SHFE copper between 73,000-73,600 yuan/mt, and spot premiums between 150-220 yuan/mt.

Aluminium: During last Friday’s night session, the most-traded SHFE 2205 aluminium contract opened at 23,150 yuan/mt, with the highest and lowest prices at 23,150 yuan/mt and 22,935 yuan/mt before closing at 23,125 yuan/mt, up 35 yuan/mt or 0.15%.

LME aluminium opened at $3,575/mt last Friday and closed at $3,625/mt, an increase of $55/mt or 1.54%.

On the supply side, the resumption of domestic aluminium production has accelerated, but the output has not reached the level of the same period last year. The pandemic has continued to affect the transportation efficiency of aluminium ingots in some areas. The domestic aluminium ingot social inventory continued to decline and dropped to 1.06 million mt last week, providing certain support to aluminium prices. It is expected that the short-term aluminium price will remain at a high level. The market still needs to pay attention to how the overseas energy crisis will evolve, inventory changes and the impact of the pandemic on transportation of upstream and downstream enterprises.

Lead: Three-month LME lead opened at $2,308/mt last Friday, and rose to the high of $2,354.5/mt amid fermenting energy crisis. The contract closed at $2,332/mt, up 1.3%.

The most-traded SHFE 2205 lead opened at 15,495 yuan/mt, and then hit the low at 15,450 yuan/mt before closing at 15,485 yuan/mt, up 0.81%. The open interest dropped 2,482 lots to 54,253 lots.

Zinc: Three-month LME zinc opened at $4,018/mt last Friday, and gained $69/mt or 1.72% to close at $4,080/mt. The open interest added 1,183 lots to 239,000 lots. LME zinc inventory lost 325 mt to 142,625 mt last Friday. LME zinc is expected to move between $4,030-4,080/mt.

The most traded SHFE 2205 zinc contract opened at 26,290 yuan/mt last Fridat, and rose 115 yuan/mt or 0.44% to close at 26,380 yuan/mt. The trading volume was 50,961 lots, and the open interest added 1,731 lots to 103,000 lots. SHFE zinc is expected to move between 26,000-26,500 yuan/mt, and 0# Shuangyan zinc flat over SHFE 2204.

Last Friday, WTI crude oil futures were up 1.4% to $113.90 per barrel. NYMEX natural gas futures gained 3.1% to $5.5710 per million British thermal units. New York Fed governor said it is reasonable to raise the rates by 50 basis points at a time if necessary, and CITI predicted the US Fed would raise by 50 basis points at each of the next four meetings.

On the fundamentals, the market was relatively bullish amid constant worries over the energy front, and zinc prices remained high. On the consumption side, the terminal consumption has not seen the pivot due to the pandemic, and downstream orders were poor as a whole. In terms of spots, the export window remained closed for the moment, and traders mostly quoted with premiums. Downstream participants purchased with cautious amid high prices, resulting in sluggish transactions. In addition, transportation efficiency stood low owing to the spreading pandemic.

Tin: During last Friday’s night session, SHFE tin moved rangebound after a lower opening, and closed at above 340,000 yuan/mt. A large amount of capital flowed out of SHFE tin market. Domestic tin social inventories continued to decline, while overseas inventories remained stable. Transactions in the spot market have remained stable recently, and overseas premiums have picked up slightly. SHFE tin will hover at highs amid stable supply and demand.

Nickel: Nickel futures fell over 10%, which indicated that the prices began to be pulled back. The volatile nickel prices under the fund game have brought great trouble to the spot market. On the supply side, affected by the fund game and the low trading volume, LME nickel surged after briefly maintaining the call-back trend last Monday and Tuesday. Driven by the soared LME nickel prices, SHFE nickel prices rose, too. The spot prices were based on the futures, and pure nickel prices were passively rising. The high uncertainty of prices led to the low expectation of downstream purchasing. With regard to nickel sulphate, the market sentiment fluctuated greatly, and both upstream and downstream were cautious and held a wait-and-see attitude. However, as the end of March approaches, some precursor enterprises still have procurement demand. With such fluctuation of nickel prices, the procurement cycle is forced to be delayed, and the production and order delivery of enterprises may face challenges. To sum up, the nickel prices deviated from the fundamentals to a large extent due to the influence of the capital game, but it will gradually return to the fundamentals when the spread is gradually improved. To the most-traded SHFE nickel contract, the trend of LME nickel is of utmost concern.

[Disclaimer: The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.]